Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, Section 118(a), 49779-49782 [2019-20474]

Download as PDF Federal Register / Vol. 84, No. 184 / Monday, September 23, 2019 / Notices amendments under the Securities Act of 1933 that permits issuers to engage in oral or written communications with certain institutional investors, either prior to or following the filing of a registration statement, to determine whether such investors might have an interest in a contemplated registered securities offering. 3. The Commission will consider whether to adopt a new rule under the Investment Company Act of 1940 that will permit exchange-traded funds that satisfy certain conditions to operate without first obtaining an exemptive order, as well as related form amendments and the rescission of certain exemptive relief to ETFs and their sponsors. The Commission will also consider whether to issue a related order granting exemptive relief from certain provisions of the Securities Exchange Act of 1934 and the rules thereunder. At times, changes in Commission priorities require alterations in the scheduling of meeting items. CONTACT PERSON FOR MORE INFORMATION: For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact Vanessa A. Countryman, Office of the Secretary, at (202) 551–5400. Dated: September 18, 2019. Vanessa A. Countryman, Secretary. [FR Doc. 2019–20609 Filed 9–19–19; 11:15 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–86996; File No. SR– CboeBZX–2019–067] jbell on DSK3GLQ082PROD with NOTICES Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Designation of a Longer Period for Commission Action on a Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Shares of the Innovator-100 Buffer ETF Series, Innovator Russell 2000 Buffer ETF Series, Innovator-100 Power Buffer ETF Series, Innovator Russell 2000 Power Buffer ETF Series, Innovator-100 Ultra Buffer ETF Series, and Innovator Russell 2000 Ultra Buffer ETF Series September 17, 2019. On July 18, 2019, Cboe BZX Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities VerDate Sep<11>2014 17:55 Sep 20, 2019 Jkt 247001 Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade the shares of the Innovator-100 Buffer ETF Series and Innovator Russell 2000 Buffer ETF Series, Innovator-100 Power Buffer ETF Series and Innovator Russell 2000 Power Buffer ETF Series, and Innovator100 Ultra Buffer ETF Series and Innovator Russell 2000 Ultra Buffer ETF Series under BZX Rule 14.11(i). The proposed rule change was published for comment in the Federal Register on August 5, 2019.3 On August 29, 2019, the Exchange filed Amendment No. 1 to the proposed rule change.4 The Commission has received no comment letters on the proposed rule change. Section 19(b)(2) of the Act 5 provides that, within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding, or as to which the self-regulatory organization consents, the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day after publication of the notice for this proposed rule change is September 19, 2019. The Commission is extending this 45day time period. The Commission finds that it is appropriate to designate a longer period within which to take action on the proposal so that it has sufficient time to consider the proposed rule change, as modified by Amendment No. 1. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,6 designates November 3, 2019, as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change (File No. SR–CboeBZX– 2019–067), as modified by Amendment No. 1. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 86511 (July 30, 2019), 84 FR 38078. 4 Amendment No. 1 is available at: https:// www.sec.gov/comments/sr-cboebzx-2019-067/ srcboebzx2019067-6101764-192027.pdf. 5 15 U.S.C. 78s(b)(2). 6 Id. 7 17 CFR 200.30–3(a)(31). 2 17 PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 49779 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–20480 Filed 9–20–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–86997; File No. SR– NASDAQ–2019–071] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, Section 118(a) September 17, 2019. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on September 3, 2019, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Equity 7, Sections 118(a)(1), (2) and (3) to add a new credit under each of these rules for non-displayed orders (other than Supplemental Orders) that provide liquidity. The text of the proposed rule change is available on the Exchange’s website at https://nasdaq.cchwallstreet.com/, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set 1 15 2 17 E:\FR\FM\23SEN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 23SEN1 49780 Federal Register / Vol. 84, No. 184 / Monday, September 23, 2019 / Notices persons using any facility, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change The Proposal is Reasonable 1. Purpose The purpose of the proposed rule change is to amend Equity 7, Sections 118(a)(1), (2) and (3) to add a new credit under each of these rules for nondisplayed orders (other than Supplemental Orders) that provide liquidity. Equity 7, Section 118(a) provides the fees assessed and credits provided for the use of the order execution and routing services of the Nasdaq Market Center by members for all securities priced at $1 or more that it trades. The Exchange is proposing to adopt a credit of $0.0010 per share executed applicable to Nasdaq-listed securities (‘‘Tape C’’) under paragraph (a)(1) of the rule, and credits of $0.0015 per share executed applicable to securities listed on NYSE (‘‘Tape A’’) and securities listed on exchanges other than Nasdaq and NYSE (‘‘Tape B’’) under paragraphs (a)(2) and (a)(3) of the rule, respectively. To qualify for each of these credits a member must provide 0.10% or more of Consolidated Volume 3 through non-displayed orders (other than midpoint orders), and provide 0.15% or more of Consolidated Volume through midpoint orders during the month. The proposed credits are provided to qualifying members for nondisplayed orders not otherwise covered by the lists of credits provided for nondisplayed orders (other than Supplemental Orders) that provide liquidity under each of the respective paragraphs of Equity 7, Section 118(a). 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,4 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,5 in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other jbell on DSK3GLQ082PROD with NOTICES 3 The term ‘‘Consolidated Volume’’ means the total consolidated volume reported to all consolidated transaction reporting plans by all exchanges and trade reporting facilities during a month in equity securities, excluding executed orders with a size of less than one round lot. For purposes of calculating Consolidated Volume and the extent of a member’s trading activity the date of the annual reconstitution of the Russell Investments Indexes shall be excluded from both total Consolidated Volume and the member’s trading activity. See Equity 7, Section 118(a). 4 15 U.S.C. 78f(b). 5 15 U.S.C. 78f(b)(4) and (5). VerDate Sep<11>2014 17:55 Sep 20, 2019 Jkt 247001 The Exchange’s proposed change to its schedule of credits and charges is reasonable in several respects. As a threshold matter, the Exchange is subject to significant competitive forces in the market for equity securities transaction services that constrain its pricing determinations in that market. The fact that this market is competitive has long been recognized by the courts. In NetCoalition v. Securities and Exchange Commission, the D.C. Circuit stated as follows: ‘‘[n]o one disputes that competition for order flow is ‘fierce.’ . . . As the SEC explained, ‘[i]n the U.S. national market system, buyers and sellers of securities, and the brokerdealers that act as their order-routing agents, have a wide range of choices of where to route orders for execution’; [and] ‘no exchange can afford to take its market share percentages for granted’ because ‘no exchange possesses a monopoly, regulatory or otherwise, in the execution of order flow from broker dealers’. . . .’’ 6 The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, while adopting a series of steps to improve the current market model, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system ‘‘has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.’’ 7 Numerous indicia demonstrate the competitive nature of this market. For example, clear substitutes to the Exchange exist in the market for equity security transaction services. The Exchange is only one of several equity venues to which market participants may direct their order flow. Competing equity exchanges offer similar tiered pricing structures to that of the Exchange, including schedules of rebates and fees that apply based upon 6 NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) (quoting Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770, 74782–83 (December 9, 2008) (SR–NYSEArca–2006–21)). 7 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 members achieving certain volume thresholds.8 Within this environment, market participants can freely and often do shift their order flow among the Exchange and competing venues in response to changes in their respective pricing schedules.9 Within the foregoing context, the proposal represents a reasonable attempt by the Exchange to increase its liquidity and market share relative to its competitors. Generally, the Exchange’s proposed schedule of credits and charges Equity 7, Section 118(a) provide increased overall incentives to members to increase their liquidity provision activity on the Exchange, and to do so broadly in orders in securities in all Tapes. An increase in overall liquidity provision activity on the Exchange will, in turn, improve the quality of the Exchange’s equity market and increase its attractiveness to existing and prospective participants. The proposed new credits are consistent with the current design of Equity 7, Section 118(a) because it provides incrementally increased incentives in return for increased liquidity provision in nondisplayed orders. Moreover, the proposed credits will be comparable to, if not favorable to, those that its competitors provide.10 The Proposal Is an Equitable Allocation of Credits The Exchange believes its proposal will allocate its proposed credits fairly among its market participants. The proposal will provide a member with an opportunity to earn a higher credit for its non-displayed orders above the current credits provided to members that provide 0.03% or more of Consolidated Volume during the month through midpoint orders or other nondisplayed orders, which are $0.0005 per share executed for Tape C securities and $0.0010 per share executed for Tape A and B securities. Like these current credits, the proposed credits for Tape A and B securities are higher than the proposed credits for Tape C securities. This is reflective of the Exchange’s 8 CBOE BZX provides a rebate of $0.0015 per share executed for non-displayed orders that add liquidity in the securities of any tape. See Cboe BZX U.S. Equities Exchange Fee Schedule, available at https://markets.cboe.com/us/equities/membership/ fee_schedule/bzx/. 9 The Exchange perceives no regulatory, structural, or cost impediments to market participants shifting order flow away from it. In particular, the Exchange notes that such shifts in liquidity and market share occur within the context of market participants’ existing duties of Best Execution and obligations under the Order Protection Rule under Regulation NMS. 10 See n. 8, supra. E:\FR\FM\23SEN1.SGM 23SEN1 Federal Register / Vol. 84, No. 184 / Monday, September 23, 2019 / Notices desire to increase market share in Tape A and B securities, which is lower in comparison to market share in Tape C securities. Moreover, it is equitable for the Exchange to increase its overall credits to participants whose orders provide liquidity to the Exchange as a means of incentivizing increased liquidity provision activity and to do so broadly in orders in securities in all Tapes. An increase in overall liquidity provision activity on the Exchange will improve the quality of the Exchange’s equity market and increase its attractiveness to existing and prospective participants. jbell on DSK3GLQ082PROD with NOTICES The Proposal Is Not Unfairly Discriminatory The Exchange believes that the proposal is not unfairly discriminatory. As an initial matter, the Exchange believes that nothing about its volumebased tiered pricing model is inherently unfair; instead, it is a rational pricing model that is well-established and ubiquitous in today’s economy among firms in various industries—from cobranded credit cards to grocery stores to cellular telephone data plans—that use it to reward the loyalty of their best customers that provide high levels of business activity and incent other customers to increase the extent of their business activity. It is also a pricing model that the Exchange and its competitors have long employed with the assent of the Commission. It is fair because it incentivizes customer activity that increases liquidity, enhances price discovery, and improves the overall quality of the equity markets. The Exchange intends for the proposal to improve market quality for all members on the Exchange and by extension attract more liquidity to the market, improving market wide quality and price discovery. Although net providers of liquidity will benefit most from the proposed credits, this result is fair insofar as increased liquidity provision activity will help to improve market quality and the attractiveness of the Exchange’s equity market to all existing and prospective participants. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. Intramarket Competition The Exchange does not believe that its proposal will place any category of Exchange participant at a competitive disadvantage. As noted above, all VerDate Sep<11>2014 17:55 Sep 20, 2019 Jkt 247001 members of the Exchange will benefit from an increase in the provision of liquidity by those that choose to meet the tier qualification criteria. Members may grow their businesses so that they have the capacity to receive the higher credits. Moreover, members are free to trade on other venues to the extent they believe that the fees assessed and credits provided are not attractive. As one can observe by looking at any market share chart, price competition between exchanges is fierce, with liquidity and market share moving freely between exchanges in reaction to fee and credit changes. The Exchange notes that the tier structure is consistent with brokerdealer fee practices as well as the other industries, as described above. Intermarket Competition Addressing whether the proposed fee could impose a burden on competition on other SROs that is not necessary or appropriate, the Exchange believes that its proposed modifications to its schedule of credits and charges will not impose a burden on competition because the Exchange’s execution services are completely voluntary and subject to extensive competition both from the other 12 live exchanges and from off-exchange venues, which include 32 alternative trading systems. The Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive, or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own fees in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. The proposed new credits are reflective of this competition because, even as one of the largest U.S. equities exchanges by volume, the Exchange only has approximately 18% market share, which in most markets could hardly be categorized as having enough market power to burden competition. Moreover, as noted above, price competition between exchanges is fierce, with liquidity and market share moving freely between exchanges in reaction to fee and credit changes. This PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 49781 is in addition to free flow of order flow to and among off-exchange venues which comprised more than 37% of industry volume for the month of July 2019. In sum, the Exchange intends for the proposed credits to increase member incentives to provide liquidity in nondisplayed Orders to the Exchange, which is reflective of fierce competition for order flow noted above; however, if the proposed credits are unattractive to market participants, it is likely that the Exchange will either fail to increase its market share or even lose market share as a result. Accordingly, the Exchange does not believe that the proposed new credits will impair the ability of members or competing order execution venues to maintain their competitive standing in the financial markets. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.11 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NASDAQ–2019–071 on the subject line. 11 15 E:\FR\FM\23SEN1.SGM U.S.C. 78s(b)(3)(A)(ii). 23SEN1 49782 Federal Register / Vol. 84, No. 184 / Monday, September 23, 2019 / Notices Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2019–071. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NASDAQ–2019–071 and should be submitted on or before October 15, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–20474 Filed 9–20–19; 8:45 am] jbell on DSK3GLQ082PROD with NOTICES BILLING CODE 8011–01–P 12 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:55 Sep 20, 2019 Jkt 247001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–86995; File No. SR– CboeBZX–2019–004] For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–20475 Filed 9–20–19; 8:45 am] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Withdrawal of a Proposed Rule Change To List and Trade Shares of SolidX Bitcoin Shares Issued by the VanEck SolidX Bitcoin Trust BILLING CODE 8011–01–P September 17, 2019. Notice of Determinations: Culturally Significant Objects Imported for Exhibition—Determinations: ‘‘James Tissot: Fashion and Faith’’ Exhibition On January 30, 2019, Cboe BZX Exchange, Inc. (‘‘BZX’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade SolidX Bitcoin Shares issued by the VanEck SolidX Bitcoin Trust under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares. The proposed rule change was published for comment in the Federal Register on February 20, 2019.3 On March 29, 2019, pursuant to Section 19(b)(2) of the Exchange Act,4 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.5 On May 20, 2019, the Commission instituted proceedings under Section 19(b)(2)(B) of the Exchange Act 6 to determine whether to approve or disapprove the proposed rule change.7 On August 12, 2019, the Commission further extended the period for consideration of the proposed rule change to October 18, 2019.8 On September 13, 2019, BZX withdrew the proposed rule change (SR–CboeBZX–2019–004). 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 85119 (Feb. 13, 2019), 84 FR 5140 (Feb. 20, 2019). 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 85475 (Mar. 29, 2019), 84 FR 13345 (Apr. 4, 2019). The Commission designated May 21, 2019, as the date by which it should approve, disapprove, or institute proceedings to determine whether to disapprove the proposed rule change. 6 15 U.S.C. 78s(b)(2)(B). 7 See Securities Exchange Act Release No. 85896 (May 20, 2019), 84 FR 24188 (May 24, 2019). 8 See Securities Exchange Act Release No. 86630 (Aug. 12, 2019), 84 FR 42035 (Aug. 16, 2019). 2 17 PO 00000 Frm 00078 Fmt 4703 Sfmt 9990 DEPARTMENT OF STATE [Public Notice 10900] Notice is hereby given of the following determinations: I hereby determine that certain objects to be included in the exhibition ‘‘James Tissot: Fashion and Faith,’’ imported from abroad for temporary exhibition within the United States, are of cultural significance. The objects are imported pursuant to loan agreements with the foreign owners or custodians. I also determine that the exhibition or display of the exhibit objects at the Fine Arts Museums of San Francisco, Legion of Honor Museum, San Francisco, California, from on or about October 12, 2019, until on or about February 9, 2020, and at possible additional exhibitions or venues yet to be determined, is in the national interest. I have ordered that Public Notice of these determinations be published in the Federal Register. FOR FURTHER INFORMATION CONTACT: Elliot Chiu, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202–632–6471; email: section2459@state.gov). The mailing address is U.S. Department of State, L/ PD, SA–5, Suite 5H03, Washington, DC 20522–0505. SUPPLEMENTARY INFORMATION: The foregoing determinations were made pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681, et seq.; 22 U.S.C. 6501 note, et seq.), Delegation of Authority No. 234 of October 1, 1999, and Delegation of Authority No. 236–3 of August 28, 2000. SUMMARY: Marie Therese Porter Royce, Assistant Secretary, Educational and Cultural Affairs, Department of State. [FR Doc. 2019–20512 Filed 9–20–19; 8:45 am] BILLING CODE 4710–05–P 9 17 E:\FR\FM\23SEN1.SGM CFR 200.30–3(a)(12). 23SEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 84, Number 184 (Monday, September 23, 2019)]
[Notices]
[Pages 49779-49782]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20474]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86997; File No. SR-NASDAQ-2019-071]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Equity 7, Section 118(a)

September 17, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 3, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Equity 7, Sections 118(a)(1), (2) 
and (3) to add a new credit under each of these rules for non-displayed 
orders (other than Supplemental Orders) that provide liquidity.
    The text of the proposed rule change is available on the Exchange's 
website at https://nasdaq.cchwallstreet.com/, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set

[[Page 49780]]

forth in sections A, B, and C below, of the most significant aspects of 
such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend Equity 7, 
Sections 118(a)(1), (2) and (3) to add a new credit under each of these 
rules for non-displayed orders (other than Supplemental Orders) that 
provide liquidity. Equity 7, Section 118(a) provides the fees assessed 
and credits provided for the use of the order execution and routing 
services of the Nasdaq Market Center by members for all securities 
priced at $1 or more that it trades. The Exchange is proposing to adopt 
a credit of $0.0010 per share executed applicable to Nasdaq-listed 
securities (``Tape C'') under paragraph (a)(1) of the rule, and credits 
of $0.0015 per share executed applicable to securities listed on NYSE 
(``Tape A'') and securities listed on exchanges other than Nasdaq and 
NYSE (``Tape B'') under paragraphs (a)(2) and (a)(3) of the rule, 
respectively. To qualify for each of these credits a member must 
provide 0.10% or more of Consolidated Volume \3\ through non-displayed 
orders (other than midpoint orders), and provide 0.15% or more of 
Consolidated Volume through midpoint orders during the month. The 
proposed credits are provided to qualifying members for non-displayed 
orders not otherwise covered by the lists of credits provided for non-
displayed orders (other than Supplemental Orders) that provide 
liquidity under each of the respective paragraphs of Equity 7, Section 
118(a).
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    \3\ The term ``Consolidated Volume'' means the total 
consolidated volume reported to all consolidated transaction 
reporting plans by all exchanges and trade reporting facilities 
during a month in equity securities, excluding executed orders with 
a size of less than one round lot. For purposes of calculating 
Consolidated Volume and the extent of a member's trading activity 
the date of the annual reconstitution of the Russell Investments 
Indexes shall be excluded from both total Consolidated Volume and 
the member's trading activity. See Equity 7, Section 118(a).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\5\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

The Proposal is Reasonable
    The Exchange's proposed change to its schedule of credits and 
charges is reasonable in several respects. As a threshold matter, the 
Exchange is subject to significant competitive forces in the market for 
equity securities transaction services that constrain its pricing 
determinations in that market. The fact that this market is competitive 
has long been recognized by the courts. In NetCoalition v. Securities 
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one 
disputes that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .'' \6\
---------------------------------------------------------------------------

    \6\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \7\
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    \7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
equity security transaction services. The Exchange is only one of 
several equity venues to which market participants may direct their 
order flow. Competing equity exchanges offer similar tiered pricing 
structures to that of the Exchange, including schedules of rebates and 
fees that apply based upon members achieving certain volume 
thresholds.\8\
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    \8\ CBOE BZX provides a rebate of $0.0015 per share executed for 
non-displayed orders that add liquidity in the securities of any 
tape. See Cboe BZX U.S. Equities Exchange Fee Schedule, available at 
https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
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    Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules.\9\ Within 
the foregoing context, the proposal represents a reasonable attempt by 
the Exchange to increase its liquidity and market share relative to its 
competitors.
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    \9\ The Exchange perceives no regulatory, structural, or cost 
impediments to market participants shifting order flow away from it. 
In particular, the Exchange notes that such shifts in liquidity and 
market share occur within the context of market participants' 
existing duties of Best Execution and obligations under the Order 
Protection Rule under Regulation NMS.
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    Generally, the Exchange's proposed schedule of credits and charges 
Equity 7, Section 118(a) provide increased overall incentives to 
members to increase their liquidity provision activity on the Exchange, 
and to do so broadly in orders in securities in all Tapes. An increase 
in overall liquidity provision activity on the Exchange will, in turn, 
improve the quality of the Exchange's equity market and increase its 
attractiveness to existing and prospective participants. The proposed 
new credits are consistent with the current design of Equity 7, Section 
118(a) because it provides incrementally increased incentives in return 
for increased liquidity provision in non-displayed orders. Moreover, 
the proposed credits will be comparable to, if not favorable to, those 
that its competitors provide.\10\
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    \10\ See n. 8, supra.
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The Proposal Is an Equitable Allocation of Credits
    The Exchange believes its proposal will allocate its proposed 
credits fairly among its market participants. The proposal will provide 
a member with an opportunity to earn a higher credit for its non-
displayed orders above the current credits provided to members that 
provide 0.03% or more of Consolidated Volume during the month through 
midpoint orders or other non-displayed orders, which are $0.0005 per 
share executed for Tape C securities and $0.0010 per share executed for 
Tape A and B securities. Like these current credits, the proposed 
credits for Tape A and B securities are higher than the proposed 
credits for Tape C securities. This is reflective of the Exchange's

[[Page 49781]]

desire to increase market share in Tape A and B securities, which is 
lower in comparison to market share in Tape C securities.
    Moreover, it is equitable for the Exchange to increase its overall 
credits to participants whose orders provide liquidity to the Exchange 
as a means of incentivizing increased liquidity provision activity and 
to do so broadly in orders in securities in all Tapes. An increase in 
overall liquidity provision activity on the Exchange will improve the 
quality of the Exchange's equity market and increase its attractiveness 
to existing and prospective participants.
The Proposal Is Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory. As an initial matter, the Exchange believes that 
nothing about its volume-based tiered pricing model is inherently 
unfair; instead, it is a rational pricing model that is well-
established and ubiquitous in today's economy among firms in various 
industries--from co-branded credit cards to grocery stores to cellular 
telephone data plans--that use it to reward the loyalty of their best 
customers that provide high levels of business activity and incent 
other customers to increase the extent of their business activity. It 
is also a pricing model that the Exchange and its competitors have long 
employed with the assent of the Commission. It is fair because it 
incentivizes customer activity that increases liquidity, enhances price 
discovery, and improves the overall quality of the equity markets.
    The Exchange intends for the proposal to improve market quality for 
all members on the Exchange and by extension attract more liquidity to 
the market, improving market wide quality and price discovery. Although 
net providers of liquidity will benefit most from the proposed credits, 
this result is fair insofar as increased liquidity provision activity 
will help to improve market quality and the attractiveness of the 
Exchange's equity market to all existing and prospective participants.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Intramarket Competition
    The Exchange does not believe that its proposal will place any 
category of Exchange participant at a competitive disadvantage. As 
noted above, all members of the Exchange will benefit from an increase 
in the provision of liquidity by those that choose to meet the tier 
qualification criteria. Members may grow their businesses so that they 
have the capacity to receive the higher credits. Moreover, members are 
free to trade on other venues to the extent they believe that the fees 
assessed and credits provided are not attractive. As one can observe by 
looking at any market share chart, price competition between exchanges 
is fierce, with liquidity and market share moving freely between 
exchanges in reaction to fee and credit changes. The Exchange notes 
that the tier structure is consistent with broker-dealer fee practices 
as well as the other industries, as described above.
Intermarket Competition
    Addressing whether the proposed fee could impose a burden on 
competition on other SROs that is not necessary or appropriate, the 
Exchange believes that its proposed modifications to its schedule of 
credits and charges will not impose a burden on competition because the 
Exchange's execution services are completely voluntary and subject to 
extensive competition both from the other 12 live exchanges and from 
off-exchange venues, which include 32 alternative trading systems. The 
Exchange notes that it operates in a highly competitive market in which 
market participants can readily favor competing venues if they deem fee 
levels at a particular venue to be excessive, or rebate opportunities 
available at other venues to be more favorable. In such an environment, 
the Exchange must continually adjust its fees to remain competitive 
with other exchanges and with alternative trading systems that have 
been exempted from compliance with the statutory standards applicable 
to exchanges. Because competitors are free to modify their own fees in 
response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
fee changes in this market may impose any burden on competition is 
extremely limited.
    The proposed new credits are reflective of this competition 
because, even as one of the largest U.S. equities exchanges by volume, 
the Exchange only has approximately 18% market share, which in most 
markets could hardly be categorized as having enough market power to 
burden competition. Moreover, as noted above, price competition between 
exchanges is fierce, with liquidity and market share moving freely 
between exchanges in reaction to fee and credit changes. This is in 
addition to free flow of order flow to and among off-exchange venues 
which comprised more than 37% of industry volume for the month of July 
2019.
    In sum, the Exchange intends for the proposed credits to increase 
member incentives to provide liquidity in non-displayed Orders to the 
Exchange, which is reflective of fierce competition for order flow 
noted above; however, if the proposed credits are unattractive to 
market participants, it is likely that the Exchange will either fail to 
increase its market share or even lose market share as a result. 
Accordingly, the Exchange does not believe that the proposed new 
credits will impair the ability of members or competing order execution 
venues to maintain their competitive standing in the financial markets.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\11\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2019-071 on the subject line.

[[Page 49782]]

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2019-071. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2019-071 and should be submitted 
on or before October 15, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-20474 Filed 9-20-19; 8:45 am]
 BILLING CODE 8011-01-P

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